Response to Gravelle

I want to thank Dr. Gravelle for her contribution to this Point/Counterpoint and her public service at the Congressional Research Service more generally. Nevertheless, I disagree with much of her analysis.

The first point is the notion that dynamic scoring introduces the prospect for “gaming” the budget—and the related notion that the desire to game the budget will place pressure on the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO) to inflate their estimates.

Budget gimmicks are nothing new. A recent example is the Patient Protection and Affordable Care Act (ACA). As passed, the ACA front-loaded revenues and back-loaded spending to make the 10-year score in the budget window acceptable. It included promised spending cuts that would so undermine the provision of services that a future Congress will simply reverse them. The bill excluded the discretionary spending necessary to operate the large new commissions and agencies. And the list could go on. The point is simply that major legislation regularly takes advantage of budget gimmicks to game the ultimate score.

Similarly, major legislation puts great pressure on the CBO and JCT. Advocates of the ACA are vocally distraught at the absence of budget savings from preventive services in the ACA. Advocates of using a temporary tax reduction on repatriated overseas earnings to finance infrastructure spending are dismayed that the JCT scores the tax holiday as losing federal revenue. Political pressure is part of the job and both agencies are familiar with facing it.

The second issue surrounds having to pick a number. I concur that settling on a single estimate is a difficult job. But it is a job with which both the JCT and CBO are quite familiar. In response to the new rules, the CBO has already displayed how they plan to report the results of the dynamic scoring.

The third point is that excluding discretionary appropriations has nothing to do with politics or an uneven playing field. The House rule and Congressional budget resolution are built on section 402 of the Congressional Budget Act, which set out the statutory requirements for formal cost estimates. This longstanding provision of the Budget Act has never applied to appropriations bills; there are no dynamic scores simply because there are no cost estimates for those bills.

Fourth, Dr. Gravelle devotes a fair amount of space to critiquing individual models and providing suggestions for getting the “right” model. I think this is simply mistaking the nature of the exercise. As I said in my original submission:

The final aspect of scoring is that it is a judgment exercise. There does not exist a formal model for every proposal Congress presents to the JCT and CBO—our elected representatives are a clever bunch. So the image of scoring, including dynamic scoring, as simply turning the crank on a model and having it spit out a number is just misplaced. Instead, the professionals at the CBO and JCT take into consideration a wide variety of evidence, including formal models where possible and appropriate, and draw a judgment about the likely budgetary impact.

In this view, it makes sense to have models that reflect the consensus in the literature. It make sense to run them the same way for competing proposals, including the nature of any necessary budgetary offsets and any monetary policy rule. But it also makes sense to let these exercises inform the final estimates rather than designating one as the estimate itself.

The final point of disagreement is her desire to exclude short-run, demand-side impacts from the scoring. Doing so would produce a dramatic inconsistency at the CBO. Each January, the CBO produces a new baseline estimate of the economic and budgetary outlook. The economic projection consists of two years or so of business cycle effects followed by an estimate of the growth rate of potential Gross Domestic Product.

To do so, the CBO updates its previous baseline outlook to include economic developments and the passage of legislation. Thus, for example, in discussing the outlook in January 2010, the CBO incorporated the impact of the American Recovery and Reinvestment Act (ARRA)—colloquially known as the “stimulus” bill. It wrote that “CBO projects that ARRA will increase real GDP by 1.5 percent to 4.5 percent during the first half of 2010, 1.2 percent to 3.8 percent in the second half of 2010, 0.6 percent to 2.0 percent in 2011, and by lesser amounts in subsequent years.” It does not make sense for the CBO to incorporate such effects in the baseline and exclude them from bills scored against that baseline.

More generally, excluding them in effect assigns to them a magnitude of zero. Indeed, excluding both short-run and long-run impacts from a budgetary score assigns the dynamic impact a value of zero. Zero is very precise, but almost certainly wrong. Dynamic scoring is desirable simply because getting the budget and policy impact roughly right is better than getting it precisely wrong.